The new service, effective
from 25 June, will enable international financial institutions to use
securities held with Euroclear Bank and J.P. Morgan as collateral in triparty
repo transactions with members of HKMA’s Central Moneymarkets Unit (CMU), to
access liquidity from Hong Kong, in particular the Hong Kong dollar and
offshore renminbi.

Euroclear Bank or J.P. Morgan
will act as triparty collateral management agents to the repo transaction,
ensuring that administrative obligations, such as collateral valuations,
eligibility, haircuts and substitutions are carried out automatically on behalf
of the two counterparties to the securitised deal.

The arrangement builds on the
March launch of the pilot platform
for the cross-border investment and settlement of debt securities. At the same
time, J.P. Morgan and HKMA partnered
to launch a repo financing collateral management platform in Hong Kong. Further
collateral management developments are foreseen with the HKMA keen to further expand
its collateral management service to allow local financial institutions to use
their securities as collateral to allow local financial institutions to use
their securities as collateral to obtain foreign currency liquidity from
international financial institutions in the in the second half of 2012.

The aims of the collateral
management service is twofold: to promote a cost effective and efficient repo
market in Hong Kong, through greater use of collateral to cover exposures in
secured lending and borrowing; and to open up the channel for financial
institutions to widen their liquidity sources and obtain offshore renminbi
liquidity from Hong Kong.